Omni-Channel Strategies and Considerations for CPG Companies - Leveraging direct-to-consumer (D2C) to drive cross-channel sales, profits and consumer loyalty in a digital world. Key considerations for companies implementing a consumer-centric value chain in a world of non-linear consumer paths to purchase.

1. Omni-Channel Strategies
and Considerations for CPG
Companies
Leveraging direct-to-consumer (D2C) to drive cross-
channel sales, profits and consumer loyalty in a digital
world
A viewpoint paper by W. Ruiz
August 2016

2. Omni-Channel Strategies & Considerations for CPG Companies
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Table of Contents
Real-World Direct-to-Consumer Experiences .........................................................3
The Potential Value for Early Entrants/Adopters ....................................................4
Keys to Going Direct – It’s More than Just Implementing e-Commerce .................6
Conclusion ..............................................................................................................9
About the Author..................................................................................................10

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Real-World Direct-to-Consumer Experiences
When I co-authored a whitepaper on multi-channel strategies for CPG companies1
in 2010, a lot of the
discussion centered on how to succeed in the marketplace without cannibalizing sales in other channels
and alienating retail partners. At that time, companies looking to experiment with omni-channel used
analyst and market research firm reports, as well as early results from trend-setting companies such as
P&G2
, to justify their incursion into the Direct-to-Consumer channel.
Today, companies can tap into a more readily available pool of real-life business case studies showing
that going “direct to consumer” works. As proof, one only needs to look at the information and number
of “ecommerce success stories” shared during this year’s Consumer Analyst Group of New York (CAGNY)
conference in Boca Raton, FL. In a relatively short six years, the conversation has evolved from “should
we do it?” to headlines such as “win where the shopper shops3
,” and “digital enhancing our competitive
edge.4
”
Key observations and insights shared during the conference included the following:
 The consumer is increasingly relying on e-Commerce channels for purchases. The implication of
this trend, as laid out in Figure 1 (Consumer Traffic Shifting from Mass to e-Commerce), is that
companies unwilling to leverage direct-to-consumer channels for fear of cannibalizing their sales
could see their revenues diminish and overall market share decline.
Figure 1 – Consumer Traffic Shifting from Mass to e-Commerce5
1
“Channel Cannibalization – Not As Relevant As You Think; Leveraging End-to-End Consumer Direct Capabilities to Build Cross-
Channel Sales and Profits,” Dale Miyakawa and Will Ruiz, http://www.slideshare.net/WillRuiz1/multi-channel-strategies-for-
cpg-companies-4-aa31858enw , November, 2010
2
“Alice.com Finds Its Niche in the Emerging CPG e-Commerce Space,” Joe Keenan,
http://www.mytotalretail.com/article/alicecom-finds-its-niche-emerging-cpg-e-commerce-space-416384/ , August 1, 2010
3
“Visibility into the Future,” Kellogg Company CAGNY Presentation, February 17, 2016
4
“Digital Enhancing Our Competitive Edge” slide from the L'Oréal CAGNY Presentation, February 19, 2016
5
Adapted from “Traffic Shifting from Mass to e-Commerce” slide from the P&G CAGNY Presentation, February 18, 2016
(http://www.pginvestor.com/Cache/1500081080.PDF?O=PDF&T=&Y=&D=&FID=1500081080&iid=4004124)

4. Omni-Channel Strategies & Considerations for CPG Companies
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 Not only is e-Commerce delivering value to CPG companies by engaging higher-spending, loyal
customers, and driving incremental sales, it is also influencing off-line sales positively! A
snapshot of what that overall value means for a company such as Kellogg’s is depicted in Figure
2 (The Value of Direct-to-Consumer e-Commerce for a CPG Company). One of the implications
of the data shared is that CPG companies should strive to be early entrants into the direct-to-
consumer e-commerce channel, so they can establish and grow brand loyalty for their products
before their competitors do. Laggards may very well be putting themselves in a disadvantaged
market position that will be hard to recover from.
Figure 2 – The Value of Direct-to-Consumer e-Commerce for a CPG Company67
The Potential Value for Early Entrants/Adopters
To be sure, market research firms and analysts still play a prominent role in showing how the e-
commerce channel is evolving, and depicting the overall value potential for it.
At a macro level, the forecasts for CPG e-Commerce performance potential are significant. In July of
2015, Kantar Worldpanel, a global company focusing on consumer and shopper insights, forecasted that
online sales for Fast Moving Consumer Goods (FMCG) would hit $130 billion by the end of 2025 (up
from $35 billion in 2015).8
More recently in 2016, 1010data shared that while e-Commerce had grown by 30% during 2015, CPG e-
Commerce had grown by 42% over the same period of time. A good portion of the growth,
approximately 20%, was driven by Amazon’s Subscribe and Save (SNS) feature, which was a default
6
Adapted from “Visibility into the Future,” Kellogg’s CAGNY Presentation, February 17, 2016
(http://investor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and-presentations/2016/2016-cagny-presentation.pdf)
7
“Accelerating the Growth of e-Commerce in FMCG: 2015 Edition,” Kantar Worldpanel, July 7, 2015
8
“Accelerating the Growth of e-Commerce in FMCG: 2015 Edition,” Kantar Worldpanel, July 7, 2015

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selection as consumers checked out.9
Around the same time, a report by Morgan Stanley Research
showed that more than 33% of online shoppers expected to buy groceries online in 2016, signaling this
could be the next big opportunity in e-Commerce.10
But just as e-Commerce has evolved and matured, so have the granularity of reports and data published
by research firms.
For example, data published by MEC, a specialist e-commerce consultancy based in the UK, shows how
online sales positively influence offline ones, supporting Kellogg’s observation on how digital shelf
exposure influences in-store sales. Depending on the category and the market, the data from MEC’s
report (see Figure 3 – The Influence of e-Commerce on Offline Sales) shows that online sales can have a
significant multiplier effect (in some cases nearly 10X) on offline ones, clearly suggesting that digital
shelf and virtual store presence are key for CPG brands.
Figure 3 – The Influence of e-Commerce on Offline Sales11
Another example of category-level insights, this time from 1010data, showed that in the US in 2015, the
top ten growth categories in CPG e-Commerce grew 60% to 85% year-over-year! Leading the way were
Laundry Detergent, Toothpaste and Health Snack Bars. The largest categories in terms of online sales
included Pet Foods, Moisturizers, Fragrance, Facial Cleaners and Coffee (see Figure 4 – The Top Ten
Growth and Largest CPG Categories in the U.S. in 2015). 12
So clearly the product category matters, and
having more granular data and insights is key to making the right decisions on which categories CPG
companies should focus on (or, experiment with).
9
“CPG Killed It in E-Commerce in 2015,” 1010data, January 2016
10
“Tipping Point for Online Groceries, Are Groceries the Next Big Driver of Global eCommerce?,” Morgan Stanley, January 2016
11
Adapted from “The Ecommerce Opportunity for FMCG Brands: Sales & Halos,” MEC Commerce, April 2015
12
“CPG Killed It in E-Commerce in 2015,” 1010data, January 2016

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At a minimum, the data certainly appears to answer one of the key questions manufacturers were
asking themselves seven years ago: Will consumers purchase our traditional retail product in an online
environment? Yes, they will.
Figure 4 – The Top Ten Growth and Largest CPG Categories in the U.S. in 201513
Keys to Going Direct – It’s More than Just Implementing e-Commerce
Even though the topic of channel cannibalization has not fully gone away, evidence of direct-to-
consumer successes has led many CPG companies to embark on, or consider, their own omni-channel
journey.
To implement successful direct-to-consumer solutions and initiatives, CPG companies will need to
consider a new world in which consumers will buy their products and interact with their brands through
multiple channels in a non-linear fashion – from awareness through purchase, to feedback and advocacy
using social media.
Implementing an omni-channel strategy, however, is not easy. In December of 2014, PwC published
results from an omni-channel survey indicating that only 16% of the retail and consumer goods
respondents could fulfill omni-channel demand profitably14
. More recently, in February of 2015, E&Y
published in a consumer goods and retail omni-channel supply chain survey that 81% of the respondents
did not believe their supply chain to be “fit for the purpose of omni-channel.”15
CPG supply chains that had been designed to move large, pallet-size quantities of product to retailers
(B2B), now have to adapt to a new reality with potentially far more distribution points and the need to
handle “eaches,” as they serve individual consumers (B2C, D2C).
13
Adapted from “CPG Killed It in E-Commerce in 2015,” 1010data, January 2016
14
“Global Retail & Consumer Goods CEO Survey: The Omni-Channel Fulfillment Imperative,” PwC, December 2014
15
“Reengineering the supply chain for the omni-channel of tomorrow,” E&Y, February 2015

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The key questions for many CPG companies now include: How can we unlock value by leveraging omni-
channel? And, where should our inventory be in order to cost-effectively fulfill demand while delighting
our consumers (see Figure 5 – High-Level Overview of the Route to Consumer in an Omni-Channel
World)?
Figure 5 – High-Level Overview of the Route to Consumer in an Omni-Channel World
To answer the challenges posed by these questions, many companies will have to design new or
additional supply chain capabilities from the perspective of the consumers, while still retaining the
ability to change, refine and continuously improve them over time. This outside-in approach will help
ensure that the overall Consumer Experience is taken into account as companies make business process
capability and design decisions that could potentially be market differentiators and drive higher sales, as
well as loyalty for them. An illustrative high-level overview of this outside-in perspective is outlined in
Figure 6 (Outside-In Perspective for Designing Consumer-Centric Supply Chains).
Figure 6 – Outside-In Perspective for Designing Consumer-Centric Supply Chains

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The starting point of this outside-in approach is to understand how the end-consumer wants to interact
with a company’s brands and purchase/re-purchase their products. One will need to understand how
the shift in buying patterns, as well as the use of technology, have led to non-linear consumer journeys,
and how these might further evolve in the future. Figure 7 (A Consumer’s Non-Linear Path to Purchase
in an Omni-Channel World) provides an illustrative overview of a consumer’s non-linear path to
purchase in an omni-channel world, and how digital processes and devices are playing an important role
in it.
Figure 7 – A Consumer’s Non-Linear Path to Purchase in an Omni-Channel World
In addition to understanding all consumer touchpoints, companies will also need to get a handle on how
to best stimulate demand. They will need to know what marketing campaigns, promotions and delivery
channels will be the most effective for their consumer base. Developing these consumer insights will
require the aggregation and analysis of structured (point-of-sale, membership, etc.), as well as
unstructured data (social media, product reviews, etc.), so the best value propositions are delivered to
their various consumer segments at the right time, on the right device.
Once there is a base-level understanding on where the demand will come from and the programs that
will be put in place to shape demand, companies will be able to model supply network scenarios in
search for the right solution to deliver the required service level for omni-channel consumers profitably.
At the same time, companies should make sure they can forecast, plan and execute so their inventory is
at the right place (channel), at the right time, at the right cost, and ready for fulfillment (a must for the
“need it now” consumer). CPG manufacturers will need to potentially improve their planning capabilities
and implement new demand, supply, inventory visibility and S&OP/IBP processes and tools to manage
their omni-channel.

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And last, but not least, their supply chain organizations will need to be far more tightly integrated with
sales and marketing as they bring products into the online channel, and continuously reassess and
optimize the supply chain to adapt to changing consumer tastes and purchasing behaviors in agile
fashion.
Conclusion
Real-life proof points show that omni-channel and direct-to-consumer digital strategies are great areas
of opportunity for CPG companies. Not only is e-Commerce delivering value to CPG companies by
engaging higher-spending, loyal customers, and driving incremental sales, it is also influencing off-line
sales positively.
But to be successful, companies will need to realize that omni-channel may require more than an e-
Commerce implementation. In order to truly delight the consumer, CPG companies will need to develop
supply chain capabilities that align to an omni-channel strategy, and fulfill consumer orders quickly and
profitably – all areas that many consumer goods companies are currently wrestling with.
To ensure a consumer-centric approach and results, companies should design the overall omni-channel
value chain from the outside in. They first must gain understanding of how end-consumers want to
interact with a company’s brands and purchase their products, and how their buying patterns, as well as
their use of technology, have led to non-linear consumer paths to purchase. Once the newly developed
supply chain capabilities are in place, companies will need to continuously adapt and refine their direct-
to-consumer channel as consumer purchasing behaviors continue to evolve. This will require the
implementation of new digital business processes, an upgrade of supply chain organizational
capabilities, as well as the leverage of modern integrated business planning solutions.
In today’s competitive market, CPG companies can no longer sit idly and wait for others to show the way
on how to leverage omni-channel to drive growth in their industry and draw closer to the consumer. The
winners in the marketplace will be those companies that are early entrants and can deliver a superior
end-to-end consumer experience – from awareness through purchase, fulfillment and use, to feedback,
advocacy and membership participation using social media.

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About the Author
Will Ruiz
Will Ruiz is a frequent author of point-of-view and thought leadership
articles/whitepapers focused on the Consumer Goods and Retail industries.
Ruiz is a Consulting Partner and Leader of TCS’ North America Consumer Goods &
Retail Consulting Practice. He has over 25 years of experience in the areas of new
product development, manufacturing operations and strategy, business process
innovation, and large-scale IT-enabled business transformations.
His background includes a broad range of operations and business innovation engagements in the
consumer packaged goods, wholesale distribution, toy, quick-service restaurant, food retail, and
manufacturing industries.
Before joining TCS, Mr. Ruiz was the leader of HP’s US Consumer and Retail Consulting practices.
Previously, he was a Principal with IBM’s Business Innovation Services group, a Manager with Ernst &
Young’s Management Consulting Performance Improvement practice, and a Senior Manufacturing
Engineer with Analog Devices, Inc.
Mr. Ruiz holds an M.B.A., with high honors, as well as a Master of Science degree in Manufacturing
Engineering from Boston University and completed the Strategy Value Creation Programme at the
London Business School.